DiNapoli agrees to LIPA extension with PSEG, but with conditions that could lead to early termination

State Comptroller Thomas DiNapoli’s office on Monday gave formal approval to LIPA’s contract extension with PSEG Long Island, even while insisting on unprecedented language allowing for termination of the pact should pending probes substantiate "allegations of criminality, fraud or abuse."

The approval clears the last formal hurdle for LIPA to continue with PSEG under a five-year extension valued at $493 million. PSEG, the New Jersey energy company, has managed the LIPA-owned grid for the past decade. The new contract takes effect on Jan. 1.

Early termination of the contract would be triggered "should a governmental investigation find either LIPA and or PSEG engaged in criminality, fraud or abuse," according to a copy of the letter to LIPA obtained by Newsday on Monday. LIPA would pay no termination fees.

LIPA's board and state Attorney General Letitia James previously approved the contract, even amid an ongoing probe by the state inspector general and an internal ethics case that includes charges of irregularities in the bidding process.

In April, a special committee of top LIPA officials had recommended that LIPA award the contract to another company, Quanta Services, following a yearlong review. That "strong" endorsement by LIPA's most experienced internal experts was subsequently rejected by LIPA’s board of mostly Gov. Kathy Hochul's appointees.

That unprecedented move followed by an equally rare cancellation of the entire bidding process raised eyebrows, and surfaced claims by two committee members that they had been pressured by a state-appointed official to lower Quanta's bidding scores on five separate occasions during their review — pressure the members resisted. Quanta subsequently sued LIPA in state court, and one of the now-former LIPA officials on the committee this month served LIPA with formal notice of his intent to sue.

Termination clause

In a letter to LIPA CEO Carrie Meek Gallagher on Monday, the comptroller’s office listed a series of changes it required in order to approve the contract, including its "insistence" on the termination clause "in the event a governmental investigation substantiates allegations of criminality, fraud, or abuse calling into question the integrity of that procurement."

The office noted that the cancellation of LIPA’s procurement for a new service provider took place "prior to an award being made, and, therefore is not before" DiNapoli’s office to scrutinize.

Nevertheless, according to the letter from Melody Goetz, deputy comptroller for contracts and expenditures: "Should such a finding be made or complaint filed, [the comptroller’s office] expects LIPA to take immediate action and conduct a new competitive procurement without any interruption of services to LIPA’s customers."

'Increased oversight'

In addition to clauses concerning investigation findings, the letter notes the comptroller’s requirement for "increased oversight" by LIPA’s board be added to the contract.

"It is imperative that LIPA ensures that PSEG LI is held accountable to the contractual standards, which will require diligent contract monitoring, oversight and administration," the letter states, indicating a level of scrutiny and discourse between LIPA and the comptroller's office preceded the approval.

LIPA "has provided information and written assurances to this office that the five-year term negotiated will result in better pricing which will redound to direct savings to LIPA customers," the letter states. It also notes there will be "no change in operational responsibilities for PSEG or any diminishment in coverage for weather-related events," among other storm-coverage-related guarantees. LIPA’s board also must approve any amendments to its budget.

DiNapoli’s office concluded by saying it will "under no circumstances consider any further extensions of this agreement" with PSEG, and recommended that LIPA start planning for a new procurement "well in advance" of the PSEG contract extension expiring at the end of 2030.

A Hochul spokesman has said the governor expects everyone at LIPA to "follow all legal and ethical standards and if anyone is found to have violated laws, she will ensure they are referred to the appropriate law enforcement authorities."

LIPA in a statement said it was "pleased" about the comptroller's approval, saying it "reflects strengthened oversight, enhanced protections for ratepayers, and improvements that support reliability, accountability, and cost savings for Long Island customers.”

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.